The United Kingdom is set to be the worst-performing economy in the G7 next year, according to the Organisation for Economic Cooperation and Development (OECD). The Paris-based thinktank has downgraded its growth forecast for the UK to 0.4% in 2024, down from a previous estimate of 0.7%, and predicts growth of just 1% in 2025, trailing behind Germany's 1.1%.
The OECD attributes Britain's sluggish performance to high interest rates, persistent price rises in the services sector, and shortages of skilled staff. The Bank of England is expected to delay the first cut in interest rates from 5.25% until the autumn, amid fears of a rebound in price growth. The US and Canada are forecast to be the fastest-growing G7 economies in 2025, both expanding by 1.8%.
Despite the downbeat assessment for the UK, the OECD offered a more optimistic outlook for the global economy, projecting global GDP growth of 3.1% in 2024 and 3.2% in 2025. The thinktank noted that inflation is gradually easing across major economies, with annual consumer price inflation in the G20 expected to decline from 5.9% in 2024 to 3.6% in 2025.
The OECD warned the UK government to maintain fiscal prudence and focus on productivity-enhancing public investment, such as infrastructure, the National Health Service, and adult skills. It also predicted that the Bank of England would reduce interest rates from 5.25% to 3.75% by the end of 2025.
Chancellor Jeremy Hunt responded to the forecast, stating that it was not surprising given the priority to tackle inflation. He highlighted that the International Monetary Fund had predicted the UK would grow faster over the next six years than any European G7 country or Japan. However, the OECD's 2025 growth forecast of 1% is half the 1.9% projected by the Office for Budget Responsibility.
